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Deckers Outdoor Corporation (DECK - Free Report) posted narrower-than-expected loss in first-quarter fiscal 2018. This footwear and apparel retailer reported adjusted loss per share of $1.28 that fared better than the Zacks Consensus Estimate of loss of $1.67 and also management’s earlier projection of $1.70–$1.65. The bottom line also showed a sharp improvement from loss of $1.80 delivered in the year-ago quarter.

We noticed that the top line did improve considerably and SG&A expenses also declined but higher cost of sales hurt the bottom line to an extent. Following the results, Deckers kept fiscal 2018 guidance intact but provided a soft second-quarter outlook.

Net sales came in at $209.7 million, up 20.3% year over year and came ahead the Zacks Consensus Estimate of $179.3 million. The company had earlier anticipated net sales to increase in low-single digits. On a constant currency basis, net sales surged 21.5%. Gross margin contracted 50 basis points to 43.2% due to foreign currency headwinds.

The increase in the top line can be attributable to earlier than planned worldwide wholesale shipments (of about $20 million) originally planned for the second quarter, jump in Direct-to-Consumer (“DTC”) comparable sales and sturdy sales registered from the HOKA ONE ONE brand. This was also the second straight quarter of revenue beat. We noted that shares of this Goleta, CA-based company have increased about 16.3% so far in the year compared with the industry that advanced 13.2%.

Deckers is focused on expanding brand assortments, introducing more innovative line of products, targeting consumers digitally through marketing and sturdy eCommerce along with optimizing omnichannel distribution. The company’s omnichannel endeavors include Click & Collect, Infinite UGG and ship-from-store.

Management in the last quarter had projected cost savings of about $150 million on the back of improvement in cost of goods sold and SG&A savings, which includes consolidation of retail outlets and process improvement efficiencies. This will help realize $100 million operating profit improvement by fiscal 2020. Management anticipates total sales of about $2 billion with operating margin of 13% by fiscal 2020. For fiscal 2018, Deckers has set operating margin goal of 10.5%.

Sales by Geography & Channel

Further, the company’s domestic net sales jumped 10.2% to $120.7 million in the reported quarter. Meanwhile, international net sales surged 37.2% to $89 million, while on a constant currency basis, the same climbed 40.8%.

DTC net sales advanced 11.8% to $65.1 million, while on a constant currency basis, sales increased 14.3%. DTC comparable sales rose 12.7% year over year. Wholesale net sales in the reported quarter soared 24.5% to $144.6 million, while on a constant currency basis, sales jumped 25.1%.

Brand-wise Discussion

UGG brand net sales grew 24.9% to $114.7 million in the reported quarter. On a constant currency basis, sales improved 26.6%. Sales increased owing to earlier shipments of orders than previously planned and higher DTC comparable sales.

HOKA ONE ONE brand net sales surged 74.2% to $30.7 million, while on a constant currency basis the same rose 75.3%. Sales increased on account of better-than-expected DTC and wholesale sales.

Teva brand net sales rose 8.6% to $37.7 million, while on a constant currency basis, the same increased 9.8%. Sturdy global wholesale and DTC sales along with robust global reorder business, fueled the sales.

Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $26.2 million, down 2% year over year on both a reported and constant currency basis. The decline in sales came on account of transfer of a retail store to a partner at the end of fiscal 2017.

Other Financial Aspects

At the end of the quarter, Deckers had cash and cash equivalents of $279.9 million, short-term borrowings of $557,000 and shareholders’ equity of $913.7 million. Inventories fell 5.9% year over year to $441.6 million due to better-than-expected sales in the quarter under review and efficient inventory management.

Guidance

Deckers, which carries a Zacks Rank #2 (Buy), reiterated fiscal 2018 outlook. Management continues to expect net sales to be flat to down 2% and envisions adjusted earnings between $3.95 and $4.15 per share. The current Zacks Consensus Estimate for the fiscal is $4.07. Gross margin for the fiscal year is anticipated to be 47.5%. Further, SG&A expense as a percentage of sales is anticipated to be nearly 37%.

In the second quarter, net sales are estimated to fall approximately 10% on account of store closures and the earlier than planned shipments in the quarter under review. Management informed that the last year quarter sales also benefited from the shipment of Women's Classic II.

Management forecasts earnings in the range of approximately $1.00–$1.05 compared with $1.23 per share delivered in the year-ago period. The current Zacks Consensus Estimate for the quarter is $1.27, which could witness a downward revision in the coming days.

3 Hot Stocks Awaiting Your Look

Investors interested in the retail space may consider better-ranked stocks such as Five Below, Inc. (FIVE - Free Report) , Burlington Stores, Inc. (BURL - Free Report) and Conn's, Inc. (CONN - Free Report) . All three of the stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Five Belowdelivered an average positive earnings surprise of 6.3% in the trailing four quarters and has a long-term earnings growth rate of 28.5%.

Burlington Storesdelivered an average positive earnings surprise of 22.6% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

Conn's delivered an average positive earnings surprise of 80.9% in the trailing four quarters and has a long-term earnings growth rate of 18.5%.

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